A. INTRODUCTION
When people agree to serve as volunteers
on charitable or not-for-profit boards of directors, potential liability issues
are probably not forefront in their minds. Of course, this is understandable.
If people were consumed with worry over potential legal liability issues, there
would be many more vacant positions on charitable and not-for-profit boards
across Canada. However, once a person volunteers to serve on a board and gets
involved in the challenging issues and decisions that directors often face,
potential liability for the decisions they make will become important.
Directors and officers liability insurance (“D&O insurance”) is an important
shield to protect directors, officers, and even other volunteers and employees,
from potential personal legal liabilities.
B. COVERAGE CONSIDERATIONS
Unlike some other common forms of
insurance policies, such as automobile insurance, which are regulated by
statute, D&O insurance is not standard, and coverage will vary
substantially between insurers. Therefore, your insurance broker or consultant
will play an important role in securing the D&O insurance policy which is
right for you and your organization. Some important matters to discuss with
your broker include:
1. Insurance Limits
The basic level of D&O insurance
starts at $1million. Depending on the size and complexity of your organization,
these insurance limits may need to be substantially increased to avoid being
faced with a claim which may be only partially insured because of inadequate
limits. Ideally, coverage for any legal or claim investigation fees should be
separate from the liability limits. Otherwise, a substantial amount of your
coverage could be consumed by legal fees if you are faced with a complicated
claim that ends up in court.
2. Broad Definition of “Insured”
To enhance the protection for your
organization, not only the directors and officers, but other persons involved
in carrying out the organization’s activities should also be covered. These
persons may include your volunteers, members, employees, as well as the
organization itself.
3. Broad Claim Coverage
Some D&O
policies only cover claims for “monetary damages” made in civil lawsuits. For
many organizations, this limited claim coverage is inadequate. Superior
D&O insurance will offer coverage for:
· demands or claims for monetary damages and
non-monetary relief, whether or not a lawsuit is actually commenced;
· criminal, administrative or regulatory
proceedings; and
· arbitration proceedings.
4. Employment Practices Liability Coverage
Many D&O
insurance policies do not provide coverage for matters relating to legal claims
made by an organization’s employees or former employees. Depending on the size
of the organization, these types of claims are common and should be covered. A
superior D&O insurance policy will provide coverage for claims relating to:
· wrongful dismissal, sexual or workplace
harassment and discrimination (including human rights tribunal proceedings);
· employment related libel, slander or invasion of
privacy; and
· the failure to provide or enforce adequate
workplace or employment policies.
5. Territorial Scope of Coverage
Many D&O policies only cover claims
made in Canada or the United States. For organizations with activities in
other countries, that limited territorial scope of coverage will not be
adequate. Therefore, you may need coverage on a worldwide basis, or at the
very least in the countries that your organization is active.
6. Policy Exclusions
As with all insurance policies, D&O
insurance policies will contain numerous exclusions from coverage. Be sure to
read and understand what is excluded from your coverage. For example, most
policies now exclude any claims relating to abuse or molestation, including
allegations that the directors failed to prevent its occurrence. Sometimes it
is possible to negotiate with the insurer to remove exclusions so as to improve
your coverage. Again, this is a matter to review carefully with your broker.
C. CONCLUSION
D&O insurance should form part of
your and your organization’s overall insurance protection. Almost all
non-profit and charitable organizations require two or more kinds of separate
insurance policies to cover the range of insurable risks faced by the
organization, its directors, officers and others. In addition to D&O
insurance, you will also typically require General Liability coverage, which is
intended to insure different liability risks than D&O insurance, such as
bodily injury and property damage claims.
Effective insurance protection for you
and your organization is available, and it is worth the time and effort to
familiarize yourself with coverage options. The time spent in securing proper
insurance coverage will provide peace of mind and pay off in the event that you
or your organization are ever faced with a claim or lawsuit.
